♪ haidi: nuclear warning, north korea has added a warhead to an icbm. the u.s. promising overwhelming response. betty: washington has the ability to send itself and its allies. china and russia call for diplomacy. haidi: the e.u. brexit leader loses patience. he said people need to understand the price of quitting. betty: counting the cost, the texas governor said hurricane harvey could be more expensive

than hurricane katrina. haidi: hello from sydney where you past 5:00 a.m. this is daybreak australia -- where it is just past 5:00 a.m. this is daybreak australia. betty: we will look at how all of the action over the weekend is going to play into the asia-pacific trading day. our top story today, the only thing that is on investors' minds is the rising threat of nuclear attack by north korea. they have successfully tested a right to bomb, claiming they can put a similar device onto an icbm. north korea saying it has the exclusive force of 100 kilotons, six times greater than the bottom u.s. dropped on hiroshima to end the second world war. to put it mildly, it has investors and everyone in the

asia-pacific quite rattled. getting headlines, south korea is holding ballistic missile drills after this north korea live fire exercises in response to this test by north korea. haidi: and it comes after president trump of course criticized south korea for its talk of appeasement, putting further pressure when it comes to what china can do. he is threatening to impose sanctions and cut trade with any country doing business with north korea. he issued criticizing tweets to beyond day just to beijing. -- tweaks to beijing. officials promised overwhelming military response if north korea were to attack the u.s. or its allies. we are expecting a risk off start of the week. look at how u.s. futures are the -- are trading, down 0.4%.

looking at the set up in asia, we have a pretty boy and look in sydney, expecting the classic risk off safe haven to dominate the day. let's get the latest on this story. yvonne man is there in south korea. let me start off with you. what is the mood where you are in seoul? yvonne: the rhetoric has escalated. -- not even not surprising at this point, pretty much business as usual. morning traffic coming in here, the business district. we continue to hear the south korean military confirming they are conducting live fire exercises along north korea's nuclear test site. president trump as well as south korean president moon had a phone call overnight talking

about the latest threats from the north and saying they have agreed pyongyang's nuclear test and violating the sanctions is a great provocation, and they will react with air force as well. we heard from local media that the u.s. joint chiefs of staff spoke with their south korean counterparts to prepare for the military response. some are calling this a potential game changer, the fact we are seeing north korea has developed the capability quite a warhead on the icbm, and the power and force as they mentioned is raising the threat level. raising the threat level by quite a bit. they: and over to you, defense secretary speaking outside the white house said the u.s. is not looking to annihilate north korea, but they are willing to exercise many military options if they need to

what has the president and vice president discussed with mattis and their military advisers? >> those were the only details they gave us. they are trying to send a message military options are on the table. they are keeping up the tough rhetoric of august, talking about a massive response to continue against us or our allies. at the same time they are pivoting to talks of economic sanctions, cutting off trade with other companies and countries that do business with north korea. mnuchines secretary spoke on the tv shows. president trump tweeted about that today. they are putting stuff ahead of the u.n. security council meeting tomorrow morning at 10:00 a.m. haidi: a lot going on this

weekend, but it is interesting timing these reports president trump is thinking of pulling out of the trade deal with south korea as well. critics have said this is a time when the alliance needs to be much stronger than ever. laura: that is true. we have had some response from senators. being in congress, there is some opposition to doing that, and it comes at a time when more and more republicans are speaking out against trump on a variety of matters. last august, there was the attacks on the majority leader mitch mcconnell. he will see resistance on that front. what would really be interesting is to see how this plays out in the powers in this with previous occasions and the heavy

militarization, it has really created quite a negative response from beijing. true, and we have not heard much from the china angle at this point. we will talk to tom mackenzie. summit here, where they say the north korean threat is a great embarrassment for beijing and maybe aiming to get china to get the u.s. to the negotiating table with pyongyang. also hearing from president trump and general mattis, trying whenlm the weather president trump did say, not just criticizing north korea, but also its ally, south korea, saying the appeasement is not working here that prompted

interesting response from the government house in seoul. we are still talking about further sanctions. once again mattis saying, they are committed to their allies. hopefully calm her head will prevail here -- calmer heads will prevail here. betty: president trump criticizing president moon for being too soft. ? at about the populist what about the average is korean citizen? do they think their government ?- average south korean citizen do they think the government is doing enough? laura: it could be a tossup on that. life goes on, we don't see a lot of threats. the flight back to seoul overnight, you did not hear anything on the raised threat level, though we are.

the finance ministry will be meeting in an hour's time, talking about another risk off day in the market possibility. traffic is still going as usual , andll -- in seoul families have said we have been here before. history is repeating again, and the response from official, where do we go from here? military options seem up in the air. betty: and we mentioned president trump and his cabinet and their response to north korea, but president trump is dealing with the aftermath of hurricane harvey, trying to get through $8 million in aid as congress reconvenes this week. how is this situation going to complicate that and vice versa, laura? laura: he will have the benefit

of different sets of advisors, but you point to something that is a real issue. there is so much on the fleet with this white house. they are not just dealing with hurricane harvey and the aftermath. we have a debt limit increase they need to push through congress. they have potential for government shutdown at the end of the month if they cannot agree for all of the agencies for next year. and there will be rustling over tax reform. they have not released their tax reform plan even though secretary mnuchin insisted they will try to get something passed by the end of the year. health care is still dangling, so there is a lot competing for this president's attention. betty: thank you so much, a reporter in washington following these news events and of course seoulnne, who is in reporting on this network. let's get the first word news with haslinda amin.

haslinda: the e.u. chief brexit negotiator is running out of patience with the u.k. after the second round of negotiations ended last week with little progress. the bbc says he told the conference in italy the british people must be educated about the cost of leaving the e.u. and the consequences which he says have not been made clear. start by resolving the issues that are on the table. then we will think about our future relief. it is no secret we think we need to have a very strong relationship with the u.k. out of the e.u., [indiscernible] haslinda: two days after president trump asked congress for $8 billion to clean up after harvey, they said the ultimate bill may top the $120 billion

spent for hurricane katrina. they say it was a down payment, and the number of people affected by harvey and the size of the disaster outweigh katrina or sandy. steve mnuchin said congress should provide aid relief in the u.s. debt ceiling, saying they need to put politics aside to be sure the harvey victims get the help they need. needs to avoid the shutdown that could rustle the market. must getaid congress the debt ceiling by october 29. the man who predicted the 2008 financial crisis all corporate the rupee fallt in india. he was after demonetization when governor in. february last year. he said the potential long-term shortts would outweigh

term. he also made his ideas known in no uncertain terms. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am haslinda amin. this is bloomberg. ♪ haidi: thanks for that. china and russia condemned north korea with nuclear belligerence, but calling for talks, not sanctions. what these measures will achieve. betty: will look at how investors are viewing wide -- rising tensions in aerial investment. we have someone joining us in sydney. this is bloomberg. ♪

♪ i have already learned in sydney. betty: i am betty lou, you are watching daybreak australia. north korea's powerful nuclear test, activated over the

weekend. the pentagon says it has the necessary tools to deal with any attack. president trump tweeting pyongyang has become a threat and embarrassment to its foremost ally, china. i want to bring in tom mackenzie. what does all of this mean for beijing and president xi jinping is hosting his counterparts from russia and india were the face is a slap in for president xi. he is hosting leaders from brazil, russia, india and south africa. this is the second time he has been holding a summit when the north koreans have taken some kind of provocative act, whether a missile test or a nuclear test. we heard from the chinese, they put out a statement saying the north koreans should move away from their wrong actions, they should stick to the security

council resolutions. but we also heard an advisor to the state cabinet they north korea is becoming more hostile to china. we heard from an editorial in the state run global times suggesting more sanctions were inevitable, and the question was whether or not there would be fallout from nuclear tests on the chinese border, whether the chinese should be noticing those, and if there is pickup, that china should consider rethinking its ties with north korea. from that, butay this was an embarrassment for president xi, and it has ramifications because rumbles and tremors were felt in .ortheast china analysts think it has not changed much, but they are in an interesting position. the fact that it is a difficult position has president

trump putting more pressure on china. he said china has not done enough. i want to pull up this chart that shows that in some ways. it is 3275 represented by the red and yellow bars are the imports and exports to and from china and north korea. you can see china has been importing less from north korea as of late. there is a marked down from the end of 2016. exports also dropping off. but i got to say the drop off is not that huge. it lends some credence to president trump is that the chinese need to be doing more to economically strangle north korea. this is something that has riled washington for a long time, the fact that chinese were not implementing the sanctions,

even sanctions that have signed off on. there is a sign they are taking tougher stances, but washington has sanctioned some smaller chinese businesses. they have launched an investigation into ip violations. some see that as a pressure point, and there are discussions now whether or not to target state-owned enterprises like energy companies or banks that have ties to north korea. that would put increased pressure on china. china saying it will retaliate with its own sanctions should that happen, but they have a number of different implications for china. we are leading up to a huge politically significant event with the party congress. president xi is trying to show he has deft handling of foreign affairs. he was talking about operation and coordination, but it rained pretty hollow when you look at

the region with the division and tensions. then you have the fact china has to look at militarization of south korea and japan as they tried to bolster their security. china has been a great about this missile defense shield. the argument becomes much weaker when you have these nuclear tests being carried out by pyongyang. year. a crucial these will not go down very well. what about russia? vladimir putin is -- they say they condemned the latest nuclear test by north korea, but , premature to be talking about sanctions. russians and chinese are closely aligned on their responses to what we see from north korea in

terms of provocation. they have condemned the missile tests, but all signs are pushing for dialogue, saying military action is not an option, that the u.s. and south korea should tests ortary exercises, and they should all sit down and have a conversation about this. russia also has trades with north korea. i talked to the economy minister, he tried to rebuff my questions. they have trade with north korea. , a city closeok to the north korean border, they trade there. there are real implications. moscow and beijing are fairly united in their response to this. haidi: talking about all the trade and economic implications,

we have been concerned trade will become in the crosshairs between beijing and washington in terms of trade. we have seen that play out between seoul and beijing, and they are being decimated with this heightened military alliance between the u.s. and south korea. that is an option. china is a difficult position because clearly the new south korea later came in with a determination that at that stage to make overtures to north korea to start dialogue. that town has shifted. -- tone has shifted. puttingt trump is pressure on them, and south korea say they need greater u.s. assistance. as you touched on china, they have been vehemently opposed to

that. the satellite and tracking could cover some of its own military assets. that is why it is turned about the fat missile system -- thaad missile system. it is hard for the chinese to going around also north korea and say you cannot have a missile defense shield where we are with a program in pyongyang. betty: we know that you and security council is meeting on monday. what do we know about any direct talks between president trump and president xi? any thoughts on that, any context? tom: i have been going through the state media, i have nothing any indication there is a call or conversation between the two presidents. possibly this is something being

handled at a lower level of this stage, but whatever washington draws of in terms of potential sanctions, and we know the treasury secretary is drawing of sanctions that could pressure and likely pressure chinese entities, china will have to respond in some way. firms, those supplying oil to north korea or and have links to north korea could be the target. china has said it would push back in washington imposes those. thank you so much, joining us from china on the chinese reaction to this nuclear test by north korea. you can get a roundup of this story and many others that you need to know in the edition of daybreak. go to dayb on the terminal. it is available on mobile. you can customize settings you only get news on assets you care

about. this is bloomberg. ♪

♪ betty: good morning. i'm betty liu in new york. haidi: you are watching daybreak australia. therts from australia say commonwealth bank will announce the departure of two directors at the upcoming meeting and a third in the next fall months. people are familiar with the story and the treasury secretary may be named a nonexecutive director later on monday. they say it would not preclude him from being chosen as the next chief executive. one of the companies affected by the crackdown on china deals -- it continues to expand, and the governor said these are acceptable. the copresident said beijing has endured on recent acquisitions,

aa, and the chinese owner of seaman the lawn are under scrutiny. n are under scrutiny. n are under scrutiny.

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across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. ♪ haidi: it is 8:30 a.m., markets open for 90 minutes -- in 90 minutes' time. pretty poignant at the moment, but we are expecting pretty risk off start to the trading week. we are indeed. equities are lower as well. let's get to work news with haslinda amin. geopolitical tensions are rising again with north korea claiming it has fitted a nuclear warhead on an intercontinental ballistic missile. they say they select -- successfully tested a hydrogen bomb and say they have a similar device onto an icbm.

they say it has an explosive force of 100 kilotons, six times greater than the bond americans dropped on hiroshima to end the second world war. >> north korea ignored repeated warnings from the international immunity and forcefully conducted nuclear tests, and we cannot tolerate that. whether we can start north korea threatening world peace is up to how the international community will coordinate. japan will deal with the matter record meeting with the u.s. and south korea and international communities such as china and russia. haslinda: the nafta talks resume in mexico city later on monday. the u.s. and fun -- and canada one better wages for mexican workers, and to limit the incentive of companies relocating south. mexican workers -- president trump has threatened

to quit nafta unless the partners agree to a major overhaul. a new bloomberg survey expects mario draghi to address the strength of the euro later this week. he declined to mention the issue at jackson hole last week, but the economists we asked that he will do so on thursday. the euro surged against the dollar prevents dust present a challenge in understanding why the thank you economy has failed to generate inflation. chancellor angela merkel is deemed to have won the debate in the upcoming election despite -- despite being on the defensive most of the time. challengersed her diesel scandal. broadcasterstate gave the chancellor is a win also says it remains undecided. don't miss the weekly 30 minute germany decides show.

we will review the latest political analysis in the run-up to the election. global news hour --global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am haslinda amin. this is bloomberg. ♪ thank you so much for that. let's get a quick update from the market. they are setting up for the market in asia, new zealand aussie orderway, the the kiwi dollar 71.67, futures in australia shaping up like this. we have seen a few moves with the rest sentiment -- risk off sentiment, but as you can see, sydney set to open higher, the aussie dollar 79, 61. 79.61. let's get more on what we should be watching for as trading is underway. the asia headlines editor

joining me in sydney. saying people have been we are ratcheting up tensions with north korea, then you see records get to record highs. this time might be different. >> possibly, and that has been played out already. there was a gap low in dollar-yen, safe haven currency and well with trading, but that move is fading. people see the knee-jerk and potential opportunity to get in. is it different this time? i am not sure. i would not want to play into this bomb test in north korea, and the key will be the international response. we have had the call of unity, the call for the security council to meet again. trump is a military options are on the table, everything you would expect, but nothing to suggest we will step up to that level of military response from

the western powers yet. i think north korea is intent on pushing the envelope as far as it can go. there are early signs of division between the u.s., china , japan. it is pushing the envelope to see how hard it can go. there are certain red lines. kim jong-un is aware of those. will he take it to those red lines, and what will the u.s. do ? until we know that, it is hard for the markets to give a full response. what you will see is risk off impulse when we get the tests and whatever, then the market will come back again and people will get back in. the reaction will be contained. that is what we have seen. we have seen that, and i wonder if the manufacturing data could offer more insulation from the risk in north korea. james: that is a good point.

the asian pmi from last week was pretty good, led by the china one, then we saw some across the region after that. you contrast that with the u.s. with payrolls disappointing, and you get a sense the asian economies are outperforming the rest are developed economies. that's the insulation going forward. pmi --have the malaysian today we have the malaysian pmi. one thing also, touching back on north korea, is that turns out to create tension in terms of trade, that could be, that is a big risk to these markets. we have got to be aware of that. that will contain the upside as well. betty: all right, james. we will be watching for some of those headlines on trade. the bloomberg asia headlines

editor. the heightened conflict almost certain to impact wall street as well. regular u.s. trading as opposed on monday because of the labor day holiday. there will be activity in futures, which has been open a little over half an hour. su keenan joining us. futures areyou are trading now. you can see they are stabilized around this point. futuresmuted reaction, are hard -- down. su: contained is the perfect word. a week ago we saw risk off in regard to the missile firing, and the market assessed the of thec and containment most recent threat, and we saw it move on to other aspects. here is the video because trump

is facing a busy week. this began with him visiting victimsere a lot of the of the hurricane damage have been. he has a head in the korean conflict, but it will add to the major issues before you, the debt ceiling deadline, that needs to get past. when we talk about this job number, the jobs reported did miss estimates. the economy added 126,000 jobs, less than 180,000 forecast. .age gains again disappointed we have a clip from the widely followed bond manager bill gross. you will hear tom trying to get in word in, but he said this was not a stronger force. your core inflation --

>> your core inflation is only 1%, or 6%. i think the fed is focused on wages and certainly inflation to the extent it is reflective in that. and this is a weak report. that will be a continuing focus. let's go into the automakers numbers because the auto sales came out on friday. look at the positive reaction use across the board. ford, fiat, chrysler. one thing noted was the damage from hurricane party will not delay major automakers from their deliveries and inventory. that is a positive going forward. let's go to the bloomberg, g -- 7524.elp me out volumetook all of the averages together, the high

average alone, it drops off toward where we are now, which is coming back in the september areas. this is a low point in terms of activity. it has to do with people being but lowvacation, volumes tell us there is not a lot of participation this particular week. we could see that play out in the way of the market reaction. haidi: if we can take our eye off of geopolitics, those earnings -- what are we looking ahead to? su: the u.s. services industry, one of the largest. it gives an eye into the world of economic recovery. let's look at some of the headlines here. economists are expecting interest rates to have ended at a faster pace.

that will underscore steady growth in line. it is also, if you look at the fact that jobs data was not exactly where wall street was expected to see it, the fed that thed to see service is coming on strong. let's go into the earnings reports that are coming apart. the teal and of earnings, but -- but end of earnings, kroger, the market is focused on more than normal because of the huge me your journal -- the huge merger between amazon and whole foods. haidi: a big week, su keenan in new york. geopolitical risk and how that affects investment strategy is different this time. we are speaking with the president of the chicago investment. this is bloomberg. ♪

♪ morning.od i'm betty liu in new york. haidi: you are watching daybreak australia. the global equity market in the u.s. are likely to get hit while gold and the classic safe havens play outas tension escalates after north korea's nuclear test -- play out as the tension escalates after north korea's nuclear test. prices falling as well as nikkei futures in chicago seeing down. the about this more. we have the investment president. is it different this time? there is a ratcheting up tension , selloff, people buying into the rallies. do you feel like this time there is more at stake?

>> there is a lot at stake, but the futures are not telling us this time it is different. we have nothing the future selloff in any way. there is a belief, maybe that is hope, that rationale will prevail. ratcheting that you see in the asia open, what do we expect that to do? do you protect yourself against a worst-case scenario or take the opportunity [indiscernible] mellody: the long-term story is possible. i believe it will work out, and i never believe in overreacting to any news. i love that quote, during the financial crisis. he said, don't do something [indiscernible] stress, of market standing is often the best answer. saying goren buffett

in when others are fearful. that is how you make money. let me show you this chart, which has been interesting. g #btv 9485. basically shows how much of the reaction in the fix has been -- the vix has been with headlines from north korea. you see the spike, but very muted reactions with the price changes in the s&p. that is represented by keller bars for our viewers. kind of no reaction. your bests why, in estimation, why we have such a big reaction in the vix, yet the market themselves have been some muted. what is behind that? mellody: i cannot explain that for you. i would they again on the p

side, the market predicts the future and what it is saying now is it does not foresee a calamity. seem to be.es not dry powder, you have cash in your funds. are you planning on seeing these headlines, either accumulating more dry powder, or are you planning on supplying that when people are fearful? mellody: the opportunities to present itself. we look at a case-by-case basis. we don't make macroeconomic predictions. we are looking for when valuable reveals itself to us. -- value will reveal itself to us. we have marginally more cash than normal. we are normally fully invested at 5% or less. now we are 7.5%, so nothing dramatic, but we can be opportunistic with more powder than normal.

betty: we have spoken to many of your colleagues, making a big case on acting versus passive, not working at the -- looking at the macro situation. curious on the geopolitical headlines coming out, does that make active investing more opportunistic? mellody: i think so, it creates a great opportunity for managers like us who are high conviction managers that go against whennsus and to be greedy others are fearful as warren buffett said. so this does offer opportunity. one thing about this active versus passive debate, we have been in one kind of environment where passive has done well. it will be interesting to see how things play out when we have more ups and downs, which we have not had since the crisis. one thing about passive investing if you cannot

underperform. he cannot outperform either. -- you cannot outperform either. haidi: open your sydney office a couple of years ago. where are you seeing value? mellody: we don't have any current australian investment, though we are always looking. we are looking all over the world for opportunity. in asia we have overweight in china, and it represents two companies, china mobile and five do. -- by do -- baidu. we are not looking at geography and saying, find the stock. we are looking at opportunities. haidi: and then tencent, is that overdone? mellody: we think baidu is the better volume. -- value. haidi: you see it changing weather we get more spending

into the next six or 12 months? mellody: that is one of the reasons we have been underweight . we are more concerned about the embedded risks based on political risk and the liquidity risk that need to be like in other emerging markets. china comes down to those two names. haidi: everyone feels like we are trying to get more until the party in congress. mellody: we try to force ourselves on those issues. we are looking at a light them up perspective in terms of the name. we hope that these stocks are exploited from these changes. that does not concern us now. betty: getting back to the active and passive, active versus passive topic, here is another chart, 6132.

you see the amount of investment flows in active, which has gone nowhere over the last several years. i want to ask you, what is it active investors are not telling or managers are not telling investors? it is a great time to be opportunistic. why are these flows still stalling? mellody: i think activists have a tougher run versus passive, largely because active does perform best in a bull market, and that is what we have had since the financial crisis and it. it has been a great environment for passive, and the dollar has slowed in that regard. there is a story that is compelling to people. at the end of the day, you need active and passive for the market to work. everyone goes passive, it doesn't work.

end hasassive and -- become so crowded that it creates opportunity for managers like us. this creates even more compelling value. haidi: -- betty: thank you for joining us, visiting us in sydney. hobson aerial investment. don't forget to check out the tv function, you can watch us live previoussee interviews, dive into securities or bloomberg functions we talk about. you can be part of the conversation by sending us instant messages during our shows. check it out. ♪

♪ haidi: -- betty: check of the business flash headlines, lenovo's owner

is taking a tour of the oldest think in europe. he could pay $1.8 billion for a stack in bank international luxembourg. see a.l. was founded in 1856 and it is valued at $45 billion. and also they control rate, real estate. -- raycom real estate. haidi: tesla has delivered dozens of cars to germany. they shipped 2075 vehicles and expect growth to continue at this tempo. the news comes after bmw announced the makeover of the electric car to boost appeal and the growing competition for tesla. mark: hollywood's worst -- betty: half worst summer in a decade came to an end. estimated sales and

$75 million friday to sunday, the slowest labor day weekend 1996. the- since first time that season tally was below $4 billion since 2006. nobody going to the movies. haidi: i had not been to the movies for a long time. that is almost it for daybreak australia this morning, but we have got david and betty next for daybreak asia. there is one story in town. david: it is north korea. we are joined in the program later by the head of ratings at finch. when you look at how they do their models, how south korea is rated, it is one notch below one it would normally be with the risk profile of south korea. it has the risk sort of premium filled in -- when you try and

measure what north korea does. we will ask how things have changed, how things have deteriorated. betty: we spoke with melanie hobson, but let's get the macro view from the global macro strategist tiger, who can weigh in on how these headlines are going to weigh in on investors. right now the reaction has been quite muted so far. haidi: it has been a flight to safekeeping, but measured. also this idea of what happens with trade caught in the crosshairs between seoul and washington, seoul and beijing. what could be the potential downturn when it comes to these trade ties? we are talking to a securities international economist, getting an idea of where risk comes from

, a downside to trade and what that means with me through -- macro data. that is it. dave and that he asked. this is bloomberg. ♪

♪ it is 8:00 a.m. in seoul, korea, where the stakes have been raised. north korea sending geopolitical tensions to the highest since cuba, the north saying kim jong-un has a warhead on an icbm. washington promises an overwhelming response. china and russia call for diplomacy, not war. ♪ >>